A Tale of Two Issues: Zach Ziliak Breaks Down the HFT Debate

Zach Ziliak has seen both sides of the HFT universe. As a quant at an investment bank, he developed trading algorithms. As an attorney, he represents firms covering the whole Investment spectrum. As a participant in the AT 9000 initiative, he is working on the development of quality management standards for the testing of high frequency and other automated trading systems.

“Those of us exposed to the industry have been thinking about this for a long time,” says Ziliak. “But now because of Flash Boys, suddenly it’s conversation at the bars.” He says that any kind of rules will create “evolutionary niches” that will eventually be filled by some entity. “That’s not good and evil; that’s just game theory.”

Ziliak suggests separating the HFT issue in two. Unexpected or “one-off” events, such as the Flash Crash or the August 2012 algo error at Knight Capital, should not be lumped together with what he calls “a societal debate about whether we think what high frequency trading companies do is beneficial.”

AT 9000 – of which Ziliak has been participating in working groups, over the last two years – is a proposed quality management system for automated trading. The goal is to develop standards and best practices that firms can adopt to reduce the risks from such trading. If successful, automated trading systems would be self-policing, self-certifying and working with regulators rather than against them, in similar fashion as other industries such as aerospace and medical equipment.

Ziliak says the important thing for regulators is to ensure rules are overt and uniformly enforced, so the system will be self-policing.

“To the extent that any entity in the system hides what the rules are, so others can’t figure out how the game works, that’s not fair.”